<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission File Number:
September 30, 1995 0-13141
---------------------- -----------------------
MARTIN LAWRENCE LIMITED EDITIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-4103583
--------------------------------- ---------------------
(State or other jurisdiction (IRS Employer Identi-
of incorporation or organization) fication Number)
16250 Stagg Street
Van Nuys, California 91406
-----------------------------------------------------
(Address and zip code of principal executive offices)
(818) 988-0630
-----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to t he filing
requirements for at least the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Number of Shares Outstanding
Class at November 9, 1995
----- ----------------------------
<S> <C>
Common Stock, $.01 par value 5,893,748
</TABLE>
This document consists of 17 pages
<PAGE> 2
MARTIN LAWRENCE LIMITED EDITIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet for September 30, 1995
and December 31, 1994 (Unaudited).............. 3
Consolidated Statement of Operations
for the Nine Months Ended September 30, 1995
and September 30, 1994 and for the Three Months
Ended September 30, 1995 and September 30, 1994
(Unaudited).................................... 4
Consolidated Statement of Cash Flows
for the Nine Months Ended September 30, 1995
and September 30, 1994 (Unaudited)............. 5
Notes to Unaudited Consolidated
Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................... 10
<CAPTION>
PART II. OTHER INFORMATION
<S> <C> <C>
Item 1. Legal Proceedings................................ 17
Item 2. Changes in Securities............................ 17
Item 3. Defaults Upon Senior Securities.................. 17
Item 4. Submission of Matters to a Vote of
Security Holders............................... 17
Item 5. Other Information................................ 17
Item 6. Exhibits and Reports on Form 8-K................. 17
</TABLE>
Page 2 of 17
<PAGE> 3
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 674,000 $ 575,000
Accounts receivable, net (Note 2) 1,354,000 646,000
Inventories (Note 2) 12,531,000 13,423,000
Prepaid expenses and other current assets 370,000 423,000
Notes receivable, short-term 38,000 38,000
----------- -----------
Total current assets 14,967,000 15,105,000
Equipment and leasehold improvements,
net of accumulated depreciation and
amortization (Note 2) 2,966,000 3,565,000
Other assets 692,000 668,000
Deferred income taxes (Note 3) 969,000 969,000
----------- -----------
Total assets $19,594,000 $20,307,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses (Note 2) $ 2,450,000 $ 2,263,000
Accrued compensation and employee benefits 504,000 462,000
Deferred rents--current 214,000 412,000
Customer deposits 169,000 204,000
Notes payable 16,000 6,000
Deferred income taxes (Note 3) 1,224,000 1,376,000
----------- -----------
Total current liabilities 4,577,000 4,723,000
Notes payable, long term 134,000 23,000
Deferred rents 448,000 475,000
----------- -----------
Total liabilities 5,159,000 5,221,000
----------- -----------
Commitments and contingencies - -
Mandatorily redeemable preferred stock--
$.01 par value, 1,000,000 shares authorized,
225,000 shares issued and outstanding
at 9/30/95 (Note 4) 2,034,000 -
----------- -----------
Stockholders' equity:
Preferred stock--$.01 par value;
4,000,000 shares authorized, none issued or outstanding - -
Common stock--$.01 par value;
20,000,000 shares authorized, 8,350,000 shares
issued and 5,893,748 shares outstanding
at September 30, 1995 and December 31, 1994 83,000 83,000
Paid-in capital 27,709,000 27,709,000
Deficit (7,606,000) (4,921,000)
Less cost of shares held in treasury--
2,456,000 shares at September 30, 1995
and December 31, 1994 (7,785,000) (7,785,000)
----------- -----------
Total stockholders' equity 12,401,000 15,086,000
----------- -----------
Total liabilities and stockholders' equity $19,594,000 $20,307,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 3 of 17
<PAGE> 4
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 6,205,000 $ 4,223,000 $14,656,000 $11,531,000
Other income 112,000 133,000 368,000 1,333,000
----------- ----------- ----------- -----------
6,317,000 4,356,000 15,024,000 12,864,000
----------- ----------- ----------- -----------
Costs and expenses:
Cost of sales 2,252,000 1,621,000 5,452,000 4,257,000
Selling expenses 2,068,000 1,510,000 5,433,000 4,779,000
General and admini-
strative expenses 2,275,000 2,138,000 6,590,000 6,822,000
Interest 4,000 2,000 10,000 4,000
Net loss (gain) on
gallery closures 301,000 (104,000) 210,000 129,000
----------- ----------- ----------- -----------
6,900,000 5,167,000 17,695,000 15,991,000
----------- ----------- ----------- -----------
Loss before tax benefit (583,000) (811,000) (2,671,000) (3,127,000)
Provision for taxes
(benefit) (45,000) 5,000 (133,000) 13,000
----------- ----------- ----------- -----------
Net loss (538,000) (816,000) (2,538,000) (3,140,000)
Dividends and accretion
on mandatorily
redeemable preferred
stock 58,000 - 146,000 -
----------- ----------- ----------- -----------
Net loss applicable
to common stock $ (596,000) $ (816,000) $(2,684,000) $(3,140,000)
=========== =========== =========== ===========
Net loss per common
share $ (.10) $ (.14) $ (.46) $ (.53)
=========== =========== =========== ===========
Weighted average
shares outstanding 5,894,000 5,894,000 5,894,000 5,894,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 4 of 17
<PAGE> 5
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1995 1994
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,538,000) $(3,140,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 654,000 785,000
Loss from writeoff of leasehold
improvements from gallery closings 201,000 76,000
Changes in assets and liabilities:
Accounts receivable, net (708,000) 29,000
Income tax receivable - 454,000
Inventories 892,000 1,654,000
Prepaid expenses and other current assets 53,000 (56,000)
Other assets (24,000) (24,000)
Accounts payable and accrued expenses (Note 5) 85,000 232,000
Accrued compensation and employee benefits 42,000 (113,000)
Deferred rents (225,000) (87,000)
Customer deposits (35,000) (28,000)
Deferred income taxes (152,000) -
----------- -----------
Net cash provided by (used in) operating activities (1,755,000) (218,000)
----------- -----------
Cash flows from investing activities:
Additions to equipment and leasehold improvements (256,000) (153,000)
----------- -----------
Net cash used in investing activities (256,000) (153,000)
----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of mandatorily
redeemable preferred stock (Notes 4 & 5) 2,019,000 -
Dividends paid on preferred stock (30,000) -
Notes payable 121,000 30,000
----------- -----------
Net cash provided by financing activities 2,110,000 30,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 99,000 (341,000)
Cash and cash equivalents at beginning of period 575,000 984,000
----------- -----------
Cash and cash equivalents at end of period $ 674,000 $ 643,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
Page 5 of 17
<PAGE> 6
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS: NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The unaudited consolidated financial statements presented herein
include the accounts of Martin Lawrence Limited Editions, Inc., a Delaware
corporation, and its wholly owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated from the
consolidated financial statements.
These financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not contain certain information required by
generally accepted accounting principles. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1994. The accompanying
financial statements reflect all adjustments of a normal recurring nature which
are, in the opinion of management, necessary for a fair presentation.
Note 2. Details of Certain Financial Statement Components
<TABLE>
<CAPTION>
Accounts Receivable
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Amounts due from
trade customers $1,376,000 $ 667,000
Accounts receivable -
other 4,000 3,000
Less: Allowance for
doubtful accounts (26,000) (24,000)
---------- ----------
$1,354,000 $ 646,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Inventories
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Finished goods:
Limited editions,
frames and other $10,263,000 $10,874,000
Original works of art 1,989,000 2,345,000
Raw materials -
framing 279,000 204,000
----------- -----------
$12,531,000 $13,423,000
=========== ===========
</TABLE>
Page 6 of 17
<PAGE> 7
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS: NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 2. Details of Certain Financial Statement Components
(Contd.)
<TABLE>
<CAPTION>
Equipment and Leasehold Improvements
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Equipment $ 4,082,000 $ 3,939,000
Leasehold improvements 7,065,000 6,954,000
----------- -----------
11,147,000 10,893,000
Less: Accumulated
depreciation and
amortization (8,181,000) (7,328,000)
----------- -----------
$ 2,966,000 $ 3,565,000
=========== ===========
</TABLE>
Accounts Payable and Accrued Expenses
The Company has accrued rent over time with respect to certain of its
gallery locations. At September 30, 1995 and December 31, 1994, the Company had
accrued rent payable of $387,000 and $573,000, respectively, included in
accounts payable and accrued expenses.
Note 3. Income Taxes
The income tax benefit for the three months and nine months ended
September 30, 1995 reflects adjustments to the deferred income tax liability.
The income tax provision for the three months and nine months ended September
30, 1994 represents certain state taxes only.
Note 4. Mandatorily Redeemable Preferred Stock
On February 6, 1995, the Company issued 200,000 shares of its 10%
Cumulative Convertible Preferred Stock, $.01 par value per share (the "Preferred
Stock"), pursuant to a private placement commenced in October 1994. On September
18, 1995, the Company issued an additional 25,000 shares of Preferred Stock in a
second closing of the private placement. The shares of Preferred Stock were sold
at $10 per share. The Company has received aggregate net proceeds of $2,019,500
from the offering. The private placement has been extended to January 4, 1996 to
raise up to the maximum offering amount of $5,175,000. However, there can be no
assurances that any additional funds will be raised.
Dividends on the Preferred Stock are payable semi-annually at the rate
of 10% per annum on April 1 and October 1 of each year. Each share of Preferred
Stock will automatically convert into 10 shares of the Company's common stock,
subject to adjustment in
Page 7 of 17
<PAGE> 8
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS: NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Mandatorily Redeemable Preferred Stock (Contd.)
certain events, when the trading price of the common stock equals or exceeds
$2.25 per share for 20 consecutive trading days. In addition, holders of the
Preferred Stock may, under certain circumstances, elect to convert the Preferred
Stock into common stock.
The Preferred Stock is redeemable by the Company on or after January 1,
1997 at $10.80 per share, with redemption rates decreasing by $.20 per year
until the rate is $10.00 per share on or after January 1, 2001.
Holders of Preferred Stock will be entitled to elect 20% (not less than
two) of the Board of Directors when dividends on the Preferred Stock have been
in arrears in an amount equal to at least two semi-annual dividends. The holders
of Preferred Stock will be entitled to elect an additional 10% (not less than
one) of the directors upon each additional dividend arrearage until either they
can elect a majority of the Board of Directors or the dividends in arrears have
been paid in full.
In connection with the first closing of the private placement of
Preferred Stock, on February 6, 1995, the Company issued warrants to purchase
125,000 shares of common stock to the placement co-agents for the offering (the
"Warrants"). On September 18, 1995, the Company issued Warrants to purchase
15,625 shares of common stock to the placement co-agents in connection with the
second closing of the private placement. The Warrants are exercisable at $1.20
per share of common stock for an 18-month period commencing at such time that
the common stock equals or exceeds $2.25 per share for 20 consecutive trading
days. The exercise price of the Warrants (other than $.10 per share) may be paid
with a promissory note secured by the shares of common stock issuable upon
exercise of the Warrants and maturing 18 months from the date of issuance. The
Warrants expire five years from the date of issuance.
Note 5. Additional Cash Flow Information
For the nine months ended September 30, 1995, accounts payable and
accrued expenses include non-cash financing activities of $102,000 for dividends
payable on the Preferred Stock.
Note 6. Gallery Openings and Closings
Net loss on gallery closures for the three months ended September 30,
1995 was $301,000, which represents the write-off of unamortized leasehold
improvements and the estimated termination fees.
Page 8 of 17
<PAGE> 9
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS: NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 6. Gallery Openings and Closings (Contd.)
In September, the Company opened a new gallery located in the Century
City Shopping Center in Los Angeles, California. In addition, in September, the
Company opened a new gallery in a temporary location in the Old Orchard Shopping
Center in Skokie, Illinois in order to test the marketplace.
The Company has entered into two leases for new galleries, one in
Northridge Fashion Center in California expected to open in December 1995 and
one in the King of Prussia Plaza in King of Prussia, Pennsylvania expected to
open in January 1996. The Company has also entered into a lease for a factory
outlet gallery in the Outlets at Gilroy in California expected to open in
January 1996.
The Company commenced its new custom framing retail concept by opening
three Martin Lawrence Frame Shops located in Southern California in October. In
addition, the Company's existing Brentwood gallery was converted into a Martin
Lawrence Frame Shops location on October 19, 1995. The Company also incorporated
this concept into three of its Southern California gallery locations and plans
to expand it to some of its other Southern California gallery locations.
Page 9 of 17
<PAGE> 10
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
1. Liquidity and Capital Resources
Several key components affect the Company's ability to meet its
financial needs, including funds generated from operations, levels of accounts
receivable and inventories, capital expenditures, short-term borrowing capacity
and the ability to obtain long-term capital on satisfactory terms. For the nine
months ended September 30, 1995, the Company experienced negative cash flow from
operating activities of $1,755,000, compared with negative cash flow from
operating activities of $218,000 during the same period last year. This change
is primarily due to: (1) $1,431,000 in insurance proceeds from the January 1994
Southern California earthquake which were received in the first quarter of 1994,
(2) increased purchases of new inventory and (3) an increase in Accounts
Receivable due to the increase in sales in the third quarter of 1995.
Overall, cash increased $99,000 in the first nine months of 1995,
compared with a decrease of $341,000 for the comparable period last year. This
reflects the inclusion of net proceeds of $2,019,000 from the Company's private
placement discussed below. Such proceeds were included in cash flows from
financing activities, rather than net cash provided by operating activities.
The Company commenced the opening of Masterpieces of the World retail
stores in late May. There are currently four Masterpieces of the World stores,
which are located in regional shopping malls in California. A fifth Masterpieces
of the World located in the Glendale Galleria in Glendale, California was
converted to a Martin Lawrence Galleries location in November. Masterpieces of
the World sells framed oil paintings at affordable prices, primarily under $500.
The Company commenced its new custom framing retail concept by opening
three Martin Lawrence Frame Shops in Southern California in October. In
addition, the Company's existing Brentwood gallery was converted into a Martin
Lawrence Frame Shops location on October 19, 1995. Martin Lawrence Frame Shops
are located in strip centers and storefront locations and offer custom framing
services as well as fine art, posters and Museum Shop merchandise. The Company
also incorporated this concept into three of its gallery locations and plans to
expand it to some of its other Southern California gallery locations.
For both Masterpieces of the World and Martin Lawrence Frame Shops, the
capital requirements to open the locations are not extensive since the store
models are simple. In addition, the Company has leased temporary space or
entered into shorter term leases for the new retail stores.
In September, the Company opened a new gallery located in the Century
City Shopping Center in Los Angeles, California. In addition, in September, the
Company opened a new gallery in a temporary location
Page 10 of 17
<PAGE> 11
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
1. Liquidity and Capital Resources (Contd.)
in the Old Orchard Shopping Center in Skokie, Illinois in order to test the
marketplace.
The Company has entered into two leases for new galleries, one in
Northridge Fashion Center in California expected to open in December 1995 and
one in the King of Prussia Plaza in King of Prussia, Pennsylvania expected to
open in January 1996. The Company has also entered into a lease for a factory
outlet gallery in the Outlets at Gilroy in California expected to open in
January 1996.
On February 6, 1995, the Company issued 200,000 shares of its 10%
Cumulative Convertible Preferred Stock, $.01 par value per share (the "Preferred
Stock"), pursuant to a private placement commenced in October 1994. On September
18, 1995, the Company issued an additional 25,000 shares of Preferred Stock in a
second closing of the private placement. The shares of Preferred Stock were sold
at $10 per share. The Company has received aggregate net proceeds of $2,019,500
from the offering. The private placement has been extended to January 4, 1996 to
raise up to the maximum offering amount of $5,175,000. However, there can be no
assurances that any additional funds will be raised.
As of October 31, 1995, the Company had received $125,000 under a
disaster assistance loan from the U.S. Small Business Administration in
connection with the 1994 Southern California earthquake.
On August 14, 1995, the Company closed its gallery in the Woodfield
Mall in Illinois as a result of the Company's inability to renegotiate more
favorable lease terms. The landlord at the Woodfield Mall has demanded payment
of accrued rent of approximately $100,000 and rent through the end of the lease
term. The Company is currently trying to negotiate a settlement of these amounts
with the landlord.
The Company believes that, based on its current projections, its cash
and capital resources should be sufficient to meet its financing requirements
through the balance of 1995. However, the Company can make no assurances that it
will meet its current projections. The Company is exploring alternative sources
of liquidity, including other sources of debt or equity financing and reductions
of inventory levels. In the event that alternative sources of financing are not
available, the Company may elect to undertake such other actions as may be
appropriate in light of the circumstances existing at the time.
2. Results of Operations
a. Nine Months Ended September 30, 1995
Net sales for the nine months ended September 30, 1995 were
$14,656,000, an increase of $3,125,000, or 27.1%, compared with the
Page 11 of 17
<PAGE> 12
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
2. Results of Operations (Contd.)
a. Nine Months Ended September 30, 1995 (Contd.)
same period in 1994. The Company believes that this increase was primarily due
to: (1) lower retail sales in the first half of 1994 as a result of the Southern
California earthquake and the severe winter conditions across the United States
and (2) sales generated by the Company's newest artist whose works were first
published in the second quarter of 1995.
Retail sales were $10,833,000, an increase of 37.6% compared with the
same period last year. Retail operations provided 73.9% of total net sales
during the first nine months of 1995 through the full-period operation of 18
galleries and the partial-period operation of four galleries and five new
Masterpieces of the World locations. During the same period last year, retail
operations provided 68.2% of the total net sales through the full-period
operation of 17 galleries and the partial-period operation of seven galleries.
Retail sales on a same-store basis (14 stores) increased 44.0% compared
with the same period last year. The Company believes that this increase is due
to the reasons mentioned above.
Wholesale sales provided 12.0% of net sales, compared with 13.9% of net
sales for the nine months ended September 30, 1994. Wholesale sales for the
first nine months of 1995 were $1,760,000, an increase of 10.2% compared with
the same period last year. The Company believes that this increase is due to
sales generated by the Company's newest artist whose works were first published
in the second quarter of 1995.
Auction sales provided 14.1% of net sales, compared with 17.9% of net
sales for the nine months ended September 30, 1994. Auction sales for the first
nine months of 1995 were $2,063,000 compared with $2,061,000 for the same period
last year.
Auctions which are conducted in geographical areas where the Company
has retail galleries tend to reduce the retail sales per square foot in those
galleries. However, the Company believes that the combination of its retail
galleries and auctions have increased its overall sales in those areas.
Other income for the nine months ended September 30, 1994 includes
$1,036,000 in net insurance recoveries as a result of the Southern California
earthquake.
Historically, a majority of the Company's net sales have been generated
by the works of only a few of the Company's published artists. The Company
expects the mix of these artists to change over
Page 12 of 17
<PAGE> 13
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
2. Results of Operations (Contd.)
a. Nine Months Ended September 30, 1995 (Contd.)
time, due to factors such as changing customer preference and the expiration or
termination of publishing agreements with artists. As a result of these factors,
the Company maintains an extensive inventory of the works of popular artists and
constantly seeks to attract new promising artists and to promote their works.
The works of two of the Company's published artists accounted for approximately
12.5% and 7.3% of the Company's net sales during the first nine months of 1995.
Two of the Company's non-published artists accounted for approximately 12.4% and
7.2% of the Company's net sales during the first nine months of 1995.
Cost of sales, as a percentage of net sales, was 37.2% and 36.9% for
the nine months ended September 30, 1995 and 1994, respectively.
Selling expenses, as a percentage of net sales, were 37.1% and 41.4%
for the nine months ended September 30, 1995 and 1994, respectively. Selling
expenses include such items as advertising, sales commissions, brochures and
other promotional material costs, freight and certain salary expenses. The
percentage decrease is primarily due to the increase in sales.
General and administrative expenses, as a percentage of net sales, were
45.0% and 59.2% for the nine months ended September 30, 1995 and 1994,
respectively. General and administrative expenses include all corporate overhead
and all occupancy costs relating to the Company's retail galleries. General and
administrative expenses decreased by $232,000 compared with the same period in
1994. For the nine months ended September 30, 1995, occupancy costs decreased
$84,000 over the same period last year. Depreciation and amortization expense
decreased $132,000 compared with the same period last year. These decreases are
primarily due to the closure of galleries with high occupancy costs and opening
new galleries with lower occupancy costs. All other general and administrative
expenses decreased $16,000, compared with the same period last year.
Net loss on gallery closures of $210,000 for the first nine months of
1995 resulted from (1) a gain of $91,000 in the first quarter of 1995 from
negotiating lease termination fees on two of the company's galleries closed in
1994 and (2) a loss of $301,000 that resulted from the closure of one gallery in
Illinois.
The Company had a net loss applicable to common stock of $2,684,000 for
the nine months ended September 30, 1995, compared with a net loss of $3,140,000
in the same period last year. The decrease in the net loss is due in large part
to (1) the increase in net sales and (2) the decrease in general and
administrative expenses.
Page 13 of 17
<PAGE> 14
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
2. Results of Operations (Contd.)
b. Three Months Ended September 30, 1995
Net sales for the three months ended September 30, 1995 were
$6,205,000, an increase of $1,982,000, or 46.9%, compared with the same period
in 1994. The Company believes that this increase was primarily due to: (1)
increased auction sales and (2) additional sales generated by the Company's
newest artist whose works have received a very positive consumer response.
Retail sales were $4,818,000, an increase of 40.2% compared with the
same period last year. Retail operations provided 77.7% of total net sales
during the three months ended September 30, 1995 through the full-period
operation of 18 galleries and two Masterpieces of the World locations and the
partial-period operation of three galleries and three Masterpieces of the World
locations. During the same period last year, retail operations provided 81.4% of
the total net sales through the full-period operation of 20 galleries and the
partial-period operation of one gallery.
Retail sales on a same-store basis (17 stores) increased 50.5% compared
with the same period last year. The Company believes that this increase is
primarily due to the additional sales generated by the Company's new artist and
an improvement in consumer response to the artwork offered by the Company in
general.
Retail sales from the Company's five Masterpieces of the World
locations in operation during the third quarter of 1995 did not meet
management's expectations. The Company will continue to evaluate the viability
of this new retail concept.
Wholesale sales provided 9.7% of net sales, compared with 10.8% of net
sales for the three months ended September 30, 1994. Wholesale sales for the
quarter were $603,000, an increase of 31.9% compared with the same period last
year. This increase is primarily due to the additional sales generated by the
Company's new artist.
Auction sales provided 12.6% of net sales, compared with 7.8% of net
sales for the three months ended September 30, 1994. Auction sales for the three
months ended September 30, 1995 were $784,000, an increase of 138.3% compared
with the same period last year. The Company believes that this increase is due
to the increased number of auctions held during the third quarter of 1995,
compared with the same period last year.
Auctions which are conducted in geographical areas where the Company
has retail galleries tend to reduce the retail sales per square foot in those
galleries. However, the Company believes that the
Page 14 of 17
<PAGE> 15
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
2. Results of Operations (Contd.)
b. Three Months Ended September 30, 1995 (Contd.)
combination of its retail galleries and auctions have increased its overall
sales in those areas.
Historically, a majority of the Company's net sales have been generated
by the works of only a few of the Company's published artists. However, the
Company expects the mix of these artists to change over time due to factors such
as changing customer preference and the expiration or termination of publishing
agreements with artists. As a result of these factors, the Company maintains an
extensive inventory of the works of popular artists and constantly seeks to
attract new promising artists and to promote their works. The works of two of
the Company's published artists accounted for approximately 17.7% and 7.1% of
the Company's net sales during the third quarter of 1995. The works of two of
the Company's non-published artists accounted for approximately 12.9% and 5.8%,
respectively, of the Company's net sales during the third quarter of 1995.
Cost of sales, as a percentage of net sales, was 36.3% and 38.4% for
the three months ended September 30, 1995 and 1994, respectively. The Company
believes that this decrease is primarily due to the increase in sales of Company
published art.
Selling expenses, as a percentage of net sales, were 33.3% and 35.8%
for the three months ended September 30, 1995 and 1994, respectively. Selling
expenses include such items as advertising, sales commissions, brochures and
other promotional material costs, freight and certain salary expenses. The
percentage decrease is primarily due to the increase in net sales.
General and administrative expenses, as a percentage of net sales, were
36.7% and 50.6% for the three months ended September 30, 1995 and 1994,
respectively. General and administrative expenses include all corporate overhead
and all occupancy costs relating to the Company's retail galleries. General and
administrative expenses increased by $137,000 compared with the same period in
1994. For the three months ended September 30, 1995, occupancy costs decreased
$7,000 over the same period last year. Depreciation and amortization expense
decreased $35,000 compared with the same period last year. All other general and
administrative expenses increased $179,000, compared with the same period last
year.
Net loss on gallery closures of $301,000 (which represents the
write-off of unamortized leasehold improvements and the estimated termination
fees) for the three months ended September 30, 1995 resulted from the closure of
one gallery in Illinois.
Page of 15 of 17
<PAGE> 16
Martin Lawrence Limited Editions, Inc.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
2. Results of Operations (Contd.)
b. Three Months Ended September 30, 1995 (Contd.)
The Company had a net loss applicable to common stock of $596,000 for
the three months ended September 30, 1995, compared with a net loss applicable
to common stock of $816,000 in the same period last year. The decrease in the
net loss is due, in large part, to the increase in net sales.
While the economy shows improvement, many consumers appear to continue
to be less willing to make purchases with discretionary income. The Company's
strategy in this cost-conscious environment is to offer exceptional new art at
moderate prices. The Company intends to increase its publishing activities by
seeking out new artists as compared to recent years in order to increase its
gross profit margin. In addition, the Company is commencing to offer custom
framing services through its new Martin Lawrence Frame Shops stores. Significant
improvement in the Company's operating results is, to a large extent, dependent
upon increased consumer spending of discretionary income and the Company's
ability to publish artists that are appealing to consumers.
Page of 16 of 17
<PAGE> 17
Martin Lawrence Limited Editions, Inc.
PART II. OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Not applicable.
SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTIN LAWRENCE LIMITED EDITIONS, INC.
(Registrant)
DATED: November 10, 1995 BY: /S/ Allen A. Baron
-----------------------------------
ALLEN A. BARON
Chief Financial Officer and Treasurer
(Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, THE CONSOLIDATED STATEMENT OF OPERATIONS AND THE
CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 674,000
<SECURITIES> 0
<RECEIVABLES> 1,380,000
<ALLOWANCES> 26,000
<INVENTORY> 12,531,000
<CURRENT-ASSETS> 14,967,000
<PP&E> 11,147,000
<DEPRECIATION> 8,181,000
<TOTAL-ASSETS> 19,594,000
<CURRENT-LIABILITIES> 4,577,000
<BONDS> 134,000
<COMMON> 83,000
2,034,000
0
<OTHER-SE> 12,318,000
<TOTAL-LIABILITY-AND-EQUITY> 19,594,000
<SALES> 14,656,000
<TOTAL-REVENUES> 15,024,000
<CGS> 5,452,000
<TOTAL-COSTS> 17,695,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> (2,671,000)
<INCOME-TAX> (133,000)
<INCOME-CONTINUING> (2,538,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,538,000)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
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